A lot of people came to Bob Redinger’s auto dealership in the mid-2000s to rid themselves of their gas-guzzling sport utility vehicles (SUVs) in favour of smaller, more efficient cars. The swap made sense at the time given that the price of oil was soaring, hitting a peak of US$147.27 in July 2008.

“People were losing thousands of dollars to get out of these vehicles,” said Redinger, the dealer principal of Ready Honda in Mississauga, Ont.

But as gas prices retreated, he was slightly surprised to see those same people coming back to buy the same type of vehicles they had sold off earlier. Since then, sales of SUVs — particularly the smaller, more fuel-efficient crossovers — have yet to stall.

“In some cases, demand has been greater than supply,” Redinger said. “And I don’t think it’s going to slow down anytime soon.”

Car manufacturers seem to have finally noticed as well. Over the past several years, North American automakers have been forced to re-evaluate production as passenger car sales continue to decline, while the SUV segment shows no apparent signs of slowing down, thanks to their improved fuel economy and a wide range of new models despite the government pushing for more electric vehicles on the road.

Michael Hatch, chief economist at the Canadian Automobile Dealers Association, said until battery technology evolves to a point where it can provide longer range in larger vehicles, EVs will be limited to a smaller market.

“Right now, they continue to be a niche market and very small in the industry,” he said.

That’s certainly not the case with gas-loving SUVs. DesRosiers Automotive Consultants last week reported that light truck sales — which include SUVs as well as pickups — accounted for a record 70 per cent of total sales in Canada during October. Nearly 1.2 million light trucks have been sold so far this year, a 10 per cent increase from 2016.

Dennis DesRosiers expects light truck sales could still increase in Canada even though oil prices are rising, along with gas prices.

“There will be something that will alter the market dynamics at some point, but it looks like it still has some upside,” he said. “I think next year there is a very high probability of light truck sales hitting 70 per cent on a regular basis.”

At the same time, passenger car sales have been declining, with sales off eight per cent in October, according to DesRosiers, while light truck sales increased by nearly 14 per cent.

“I don’t think anyone saw how much of a tidal wave this shift has been. It’s been quick, and it’s been dramatic,” said Michelle Krebs, a senior analyst with Autotrader.com. “This is not just a trend. This is a total shift in the market, and it isn’t just in Canada and the U.S. It’s in China, it’s in Western Europe, it’s everywhere.”

In a conference call with analysts last week, General Motors Co.’s chief financial officer Chuck Stevens said the company is taking “decisive action” to reduce the production of passenger cars in an attempt to “right-size” inventory.

GM already announced in October that it planned to scale back production at one facility in response to declining passenger car sales. News reports said the company planned to shut down the Detroit-Hamtramck plant — which produces the Buick LaCrosse and Chevrolet Impala — for about six weeks, laying off 1,500 employees while cutting production by about 20 per cent.

Sources told Reuters that GM is also reviewing whether to cancel at least six passenger cars in the U.S. market after 2020, including the Cadillac CT6 and XTS, and the Chevrolet Impala and Volt hybrid — but the small electric Bolt isn’t on that list. Those vehicles could be replaced in 2022 with a new gasoline-electric crossover model, Reuters said.

Meanwhile, SUV production appears to be stable.

“We don’t have any downtime on full-size trucks or SUVs,” Stevens said on the analysts call. “Actually, we expect (going forward) … production to be up on those segments.”

Krebs said the rise of SUVs has both near- and long-term implications for automakers as they look to make sure their inventories adequately meet demand without ending up overstocked in certain segments.

“So far, we have indeed seen automakers cut back production of cars and maintain production of SUVs,” she said, pointing to GM’s cuts at the Detroit plant and Hyundai Motor Co. slightly scaled-back operations at its U.S. facility.

“Longer term, we will see more automakers adding new SUVs to their lineup, and thinking about whether they stay in certain car segments,” Krebs said, adding that there may be further small and mid-sized vehicle production cuts though she suspects most automakers will remain in those markets.

At Ford Motor Co.’s strategic update in October, chief executive Jim Hackett stressed the importance of making strategic choices to meet customer demand — which includes shifting US$7 billion in capital investment from cars to SUVs.

The company also implemented temporary shutdowns at five plants — two in Mexico and three in the U.S. — where passenger cars are produced.

In the U.S., the situation has been compounded because overall auto sales have fallen, said Jessica Caldwell, director of industry analysis at Edmunds.com Inc., an online car information and shopping platform.

“It’s been a challenging year for automakers to get their mix right and it probably will be until they are more accustomed to dealing with the market that is not necessarily bad, but in decline from where it was in 2013 and 2014,” Caldwell said.

“It’s more important now for them to get the mix right than it was a few years ago, when sales were growing year after year.”

Although automakers have been forced to contend with sluggish sales in the U.S., Canada is on pace for another record-breaking year, with a record two million sales projected. GM led automakers in Canadian sales last month, jumping 26.5 per cent to 26,847 units.

John Roth, GM Canada’s vice-president of sales, service and marketing, said part of the reason the company saw a double-digit sales increase last month is the strength and refinement of its product offering.

“Ten years ago, when you looked at SUVs, there were fuel economy and drivability compromisers that consumers were asked to make,” Roth said.

“What’s fuelling a lot of this changeover is that as technology across the GM lineup has gotten better, so has performance, drivability, connectivity and things like versatility and utility … you don’t feel like you’re driving a machine that feels unwieldy.”

Unlike in the U.S., Roth said he “doesn’t see any major changes on the horizons” when it comes to GM’s production in Canada.

“We are taking all the allocations that we are earning. I think we are in a really stable position from an auto industry standpoint and very stable within General Motors,” he said. “We have the flexibility to make adjustments so we can manage supply and demand of vehicles appropriately.”

At the same time Ford and GM try to pivot more to SUVs, both companies have promised to add several new fully electric vehicles to their lineups.

GM Ford plans to launch 13 electric vehicles in the next five years, while GM is planning to have 20 new all-electric vehicles by 2023.

Many analysts still see SUV sales continuing to increase in the future when electric vehicles become more popular, but auto economist Hatch forecasts a slight slowdown in the near future.

“I think the trend will probably flatten out over the next few years, just because it’s been so dramatic over the past five years or so,” he said. “It’s been really quite stunning, but there’s a limit to how far you go.”

But both Krebs and Caldwell expect automakers to continue focusing on adding new SUVs to their lineups while carefully monitoring production of cars.

Caldwell points to the mid-sized sedan as one vehicle at risk of production cuts as consumers continue to select the compact crossover SUV, which is a similar-sized vehicle that offers many of the same benefits as a car, but with perks such as higher seating and potentially more cargo space.

“As good as these products are — and they really are great — they are mid-sized sedans, and that’s just not what people want anymore.”

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Revenge of the SUV: Why is this gas-loving ride once again king of the road?

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